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    Applicability of Limitation Period vis-à-vis Refund Claim under Rule 5 of Cenvat Credit Rules, 2004

    Rule 5 of CENVAT Credit Rules, 2004 (for brevity ‘Rule 5 of CCR’) provides for refund of accumulated CENVAT credit of inputs and input services used in relation to the goods/services exported, to a manufacturer/service provider subject to certain safeguards and conditions as prescribed in Notification No.27/2012 – CE (N.T.) as amended. The notification provides for time limit for filing of refund claims. 

    This article aims to through light on the confusion/misinterpretation by certain authorities surrounding the time limit issue that was put to end through recent amendment in the notification. 

    Position prior to 1st March 2016 (i.e. before amendment of Notification 27/2012-CE(NT)): 

    Notification no 27/2012—CE (NT) specifies that the refund claims under rule 5 should be made before period of expiry specified in section 11B of the Central Excise Act, 1944(for brevity ‘Sec 11B’ of CX). 

    Sec 11B deals with period of limitation with respect to refund claim of excise duty and interest. It states that the refund claim should be made before the expiry of one year from the relevant date. The relevant date has been defined in the explanation to the rule which is as follows: 

    "relevant date" means, - 

    • in the case of goods exported out of India where a refund of excise duty paid is available in respect of the goods themselves or, as the case may be, the excisable materials used in the manufacture of such goods, - 
    • if the goods are exported by sea or air, the date on which the ship or the aircraft in which such goods are loaded, leaves India, or
    • if the goods are exported by land, the date on which such goods pass the frontier, or

    (iii) if the goods are exported by post, the date of despatch of goods by the Post Office concerned to a place outside India;

    .

    .

    .

    (f) in any other case, the date of payment of duty 

    Thus, there is no relevant clause in the definition of relevant date which provides for relevant date in case of accumulated CENVAT credit. 

    This lead to various doubts in the trade and department resulting in the following standpoints: 

    1st School of thought: 

    Sec 11B deals with time limit for filing refund claim of excise duty (and service tax by virtue of Sec 83 of Finance Act 1994) and interest thereof. Accumulated CENVAT Credit due to exports loses the character of tax. It is a cash amount due by Government to exporter.

     

    Sec 11B does not provide for the relevant date from which the one year time limit is to be counted, for refund claim of accumulated CENVAT credit. Thus, time limit specified in Sec 11B does not apply to refund claim under rule 5. 

    Allahabad High Court opined that said time limit is not applicable (Elcomponics Sales Pvt Ltd case) 

    nd School of Thought: 

    Since the notification 27/2012 specifically provides for applicability of time limit as per Sec 11B, it cannot be said that time limit as per Sec 11B does not apply to refund claims under rule 5. 

    Upon harmonious reading of the notification and the section, it can be said that the relevant date in case of refund under rule 5 is date of export. This view has been taken by the Madras High Court in the case of Commissioner of Central Excise, Coimbatore v. GTN Engineering (I) Ltd.

    Now, coming to what exactly is date of export in case of export of service has been interpreted differently. 

    They are:

    Viewpoint 1: Services to be considered as exported, the proceeds need to be realised in foreign currency as per rule 6A of Service Tax Rules, 1994. Also, Notification 27/2012 requires the claim to be filed with relevant BRCs so as to establish the realisation of proceeds in foreign currency. Thus, the export of services is complete only on realisation of proceeds and hence, is the date of export from which the one year time period applies. 

    Viewpoint 2: Services are exported as soon as the invoice is raised and condition of receipt of proceeds is only a condition to ensure realisation of foreign currency. Thus, date of export invoice is the date of export from which the time limit applies. 

    These diverged viewpoints lead to confusion with respect of time limit for refund claim under rule 5 

    Amendment of Notification 27/2012-CE(NT) w.e.f. 1.03.2016: 

    To clear up the confusion and to speed up the processing of claims, the notification has been amended vide notification no. 14/2016-CE (NT) which can be summarised as follows: 

    The refund claim has to be filed:

    • In case of manufacturer-before expiry of period as specified in Sec 11B of Central Excise. 
    • In case of Service provider, before the expiry of one year from the date of – 

    Receiptof payment in convertible foreign exchange, where service has been provided prior to such receipt of payment;

    Issueofinvoice, where payment has been received in advance prior to issue of invoice. 

    Thus, the misinterpretation by authorities of the above provision of time limit has been put to an end. 

    Remarks: 

    ØComing to the point that whether time limit as per Sec 11B is actually applicable to refund claim, before the amendment to the notification, Section 11B is applicable for claim of duty/tax. But refund filed on account of balance accumulated CENVAT Credit due to exports is a cash incentive extended by Central Government losses the character of tax. It is a cash amount due by Government to exporter. 

    Thus, Sec 11B has no relevance with respect to refund claim of accumulated CENVAT credit. As Rule 5 is intended to achieve zero rating of exports, one may explore the possible application of general limitation under Limitation Act if not the limitation specified under section 11B. 

    ØEveniftime limitation is applicable prior to amendment, it can be said that there was no ambiguity with respect to the export point of time from which the limitation period is to be calculated i.e. whether date of invoice or date of realisation of proceeds constitute the date of export. It can be only mis- interpretation by authorities but not ambiguity in the law 

    A service is said to be exported only when the proceeds are realised in foreign currency, non-receipt of the same would make the services being treated as unexported. This can also be established through the method specified for calculation of export turnover as per rule 5 of CCR, whereby turnover is nothing but the payments received pertaining to the relevant period of refund claim. 

    Also, in the case of foreign currency being received in advance and invoices are raised setting off the against advance received, there could not be any confusion as – Export cannot be materialised just because foreign exchange is received, but only when the actual service is provided and the export invoice being raised. 

    Concluding words: 

    It is the policy of the country that exports should be zero rated. No taxes should be exported. This is for the larger interest of the country for boosting the economy. Compared to this time limit should be of less importance. Many practical constraints have led to belated filing of refund claims like FIRCs/BRCs/STPI certifications etc. 

    Further to add; an exporter who is having domestic and export turnover, may use his accumulated CENVAT Credit at any point of time for set-off against his output liability. When there is no time restriction on utilization of credit relating to exports, how far it is prudent to impose such restriction for claiming refund of such credit in case of exporters who do not have domestic turnover and are forced to file refund claim in order to get their exports zero-rated. 

    Thus, in order to protect the greater objective of not to export taxes, the technical issues like time limit should be given less/no consideration in genuine cases where eligibility of refund claim is established beyond doubt. 

    "If everyone is moving forward together, then success takes care of itself” - Heny Ford

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